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Neovasc: a micro-cap with cash, and three innovative heart products

Published: 13:12 09 Jul 2013 EDT

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Neovasc (CVE:NVC), which has three products for treating heart disease and related conditions, finds itself in a unique position as a micro-cap, junior-listed company. It is generating enough cash from one of its products already that it can focus on development of its two pipeline products with minimal cash outflow and dilution to existing investors. 

The company, formed five years ago from an amalgamation between two private Israeli medical device companies and publicly-traded Canadian firm Medical Ventures, currently makes all of its revenues from its tissue business, which initially started by supplying specially-processed tissue for use as surgical patches. 

Neovasc and its predecessor companies have a 20-year plus track record in running bovine and porcine pericardium through a chemical process, and turning it into an implantable biocompatable leather-like product with the strength and physical characteristics of natural tissue that can be used in a variety of surgical procedures. 

With the growth of the transcatheter heart valve market, the company decided to focus this business on the provision of pericardial tissue for fabricating heart valve leaflets and other heart valve components. It now supplies companies in this space with valve-grade tissue, and it also offers consulting and valve manufacturing services as its customers transition from R&D into commercial valve production. 

The company's tissue business alone generated $7.8 million in sales last year, and expects sales to total about $10 million this year. Worldwide sales of first generation transcatheter aortic valves reached an estimated $600 million in 2012, according to recent stats, with forecast sales of $900 million this year, and Neovasc hopes to be a major supplier to the new companies driving this growth. 

"As second generation products emerge, we hope to see this part of our business grow substantially. It could be a $20 to $40 million business just based on the customers we have today," says CFO of Neovasc, Christopher Clark. 

And growth for Neovasc is not limited to this segment. The company is developing its Neovasc Reducer device designed to treat refractory angina - chronic severe chest pain caused by a lack of blood flow to the heart. It works by normalizing the blood flow across the heart muscle and increasing flow into diseased areas of the heart. 

The device, which was acquired with a 15-patient study that showed significant improvement in angina symptoms and long-term safety, was CE marked in Europe in November 2011. The company is now completing 6-months of follow up in the COSIRA 104-patient, double-blind efficacy trial, as it works toward a broader launch in Europe and eventual FDA approval in the U.S.  It anticipates approaching the U.S. regulatory body to start the process in 2014 or 2015, depending on data from the COSIRA study, which is targeted for release late this year. 

The market potential for the Reducer will be significant if the efficacy data is consistent with earlier studies. The company estimates it could be used to treat two million existing refractory angina patients in the U.S. and Europe, who have failed standard therapy, 400,000 new refractory patients who are diagnosed annually and eventually, a further one million patients annually with earlier stage angina.

"Once the COSIRA data is available, this would seem like the ideal time to look for a partnering opportunity as the Reducer belongs in the sales bag of an international cardiology sales force," says Clark. 

The company opted for a double blind study, notes the CFO, which blinds both the tester and the subject, out of concerns regarding an elderly patient population that is known to have a strong placebo effect. 

Building on its expertise in implantable biocompatible tissue and heart valve manufacturing, the company two years ago began working on a new transcatheter device called Tiara, for the treatment of mitral regurgitation - a disease that can cause significant disability or death and affects roughly four million patients in the U.S. alone, according to Neovasc

The mitral valve replacement device, which is inserted in a minimally invasive fashion with a catheter inserted through the apex of the heart, is where a significant portion of the company's future value may lie. "We believe we're in the top three to five companies in this area at the moment," affirms Clark. 

Animal model tests for the device were positive, but Clark concedes animal models, while helpful, are not perfect predictors of what will happen in human patients. A first-in-man study is slated for later this year or early next, to be tested at sites in Vancouver, Antwerp and Tel Aviv. 

"We are very much looking forward to this study. We're going into it with as much data as we can, and we believe it could be a significant value generator for the company," says Clark, who attributes some of the company's success to date to having existing revenues from its tissue business, which have helped underwrite a significant portion of development costs for its Tiara and Reducer products. 

Neovasc’s cash position is in line with expectations. With over $5 million in the bank at the end of its latest quarter and with another $0.5 million in proceeds expected to come in this summer from warrants under a previous financing completed in 2011, it has enough cash to reach key milestones for each of its development products. 

"If there will be a next fundraising, it would most likely be a transformational one because we would have decided to take the Reducer and launch it in Europe ourselves, or take Tiara through the CE Mark approval process on our own as a result of highly positive data," Clark says, adding that the company has also raised additional non-dilutive capital by selling rights to non-core products. 

Neovasc’s position is rather unusual, in the fact that it is a Canadian microcap company that doesn't currently need financing. In fact, when the financial crisis hit in 2008, Neovasc stripped itself down, cutting its development projects, and generating cash flow from its tissue sales. This ability, which could easily be repeated should the economic times warrant, says Clark, is one most cash-starved Canadian junior companies would kill to have right now. 

"Once we know where we sit after our milestones for Tiara and the Reducer are achieved, it will be time to assess what the next steps for our company will be," says the CFO, citing potential partnerships, securing additional resources, or possibly looking to sell one or both of its development projects. 

The company is also fortunate to have Dr. Phillip Frost, a famed entrepreneur in the medical device and biotech industries who made his fortune selling drug manufacturer Ivax to Israel's Teva Pharmaceuticals for $7.6 billion in 2005, as a 31 per cent shareholder. A former dermatology professor, Dr. Frost got his start in pharma in the early 1970s when he took over Key Pharmaceuticals with partner Michael Jaharis to develop generic drugs and veterinary products. They sold the company to Schering-Plough in 1986, after which Frost went on to found Ivax. 

From the run in Neovasc's stock price this year, it is evident that shareholders are confident in the company's growth plans. Year-to-date, its shares have rallied 62.5 per cent on the TSX Venture Exchange, compared to a 28.5 per cent decline for the S&P/TSX Venture Composite Index. It is trading at $2.60, giving the company a market cap of just over $124 million.

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